I’m not an expert on financial regulation, by any means. But I do know that after living through (and graduating during) the Great Recession, I am very supportive of regulation that protects consumers. The fiduciary rule, a piece of financial regulation, has recently come back into the news after Trump ordered the Department of Labor to review the rule before it goes into effect on April 10th.
But I do know that after living through (and graduating during) the Great Recession, I am very supportive of regulation that protects consumers.
Why was the fiduciary rule put into place?
Before I go into detail on the fiduciary rule, let’s take a walk down memory lane. The Great Recession was a major worldwide economic downturn that began in 2008 and continued into 2010 and beyond. This was in large part due to financial deregulation, mismanagement of people’s money, and people borrowing more than they could afford. (Again, not an expert on the recession. Learn more here.) The recession resulted in widespread unemployment, many people losing their homes, increased debt, and more.
As a result of the Great Recession and its aftermath, the U.S. government enacted regulation, which is the usual next step after a financial disaster. The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by Congress in 2010. The goal of the legislation was: “To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail”, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”
The Consumer Financial Protection Bureau was also created as a result of this bill. The fiduciary rule itself was formally proposed by the Department of Labor in April 2016 and was passed shortly thereafter.
What’s a fiduciary anyway?
In a financial context, a fiduciary is required to act in the best interest of the person or party whose assets they’re managing. If your investment advisor is a registered investment advisor, they have a fiduciary responsibility and are legally required to act in your best interest. However, many brokers, insurance professionals, and others in the financial industry do not (yet).
The fiduciary rule is designed to make all financial professionals who provide retirement planning advice or work with retirement plans accountable to the fiduciary standard. The rule is currently scheduled to be phased in from April 10, 2017 through January 1, 2018.
What happens now?
On Friday, February 3rd, Trump ordered the Department of Labor to “review” the fiduciary rule. This was not an executive order, nor a demand that the rule be rescinded. However, it has left brokerage firms and others on “Wall Street” confused about what they should do next. It’s unclear, and honestly, I think we might end up having to wait and see what happens.
Is there a silver lining?
I think so. In response to the fiduciary rule, firms have already begun to change their business models to comply. It’s unclear whether or not they would (or could) reverse course if the rule was deferred.
In addition, many consumers are now expecting their investment firms to have their best interest at heart. We are less than a decade out from the Great Recession, and we aren’t going to forget about it anytime soon. Sometimes, business has to follow what the consumers want, not the other way around. So let’s hope that the tide continues in this direction, regardless of the fate of the fiduciary rule. I know I will only put my money into a fiduciary moving forward. How about you?
So, who can you trust with your money?
Look for companies that already have your best interest in mind. I think it’s especially important to find companies that had your best interest at heart from the beginning, not just because they were ordered to. You don’t want to have to keep checking whether or not your management firm has changed their business model every time regulation shifts.
Some good examples are Ellevest and WorthFM. Bonus: they are owned and run by women FOR women. These particular companies can manage your IRAs and other investment accounts. I personally just moved my investments to Ellevest and I’m excited about it! (They even sent me flowers when I first opened my account.)
Good luck!
Maggie Germano
Certified Financial Education Instructor. Feminist and financial coach for women. Founder of Money Circle.